Microsoft's recent rally may have more room to run, according to Bank of America, which raised its price target on the software giant to $600 from $500 while maintaining a Buy rating. The new target, based on 28 times the bank's calendar 2027 earnings estimate, implies roughly 20% upside from current levels.
The move comes as investor concerns over software-sector weakness and excessive artificial intelligence spending ease. Microsoft shares have gained nearly 30% since the end of July and recently posted their strongest six-day stretch since October 2025, reflecting growing confidence in the company's ability to monetize its AI investments.
Azure and Copilot provide the evidence
The latest rally follows a strong fiscal fourth-quarter earnings report. Azure revenue growth accelerated 43% year over year, while Microsoft's guidance for 45% growth in the current quarter exceeded Wall Street expectations. The company is also seeing increasing adoption of its AI-powered Copilot products, with paid seats surpassing 30 million and net new additions more than doubling from the previous quarter.
For BofA analyst Tal Liani, Microsoft's advantage goes beyond any single AI model. The company is building what he describes as a full-stack AI portfolio, combining its own models with offerings from third-party providers. This approach allows customers to choose the most cost-effective model for each task while maintaining governance over user actions.
"Not every workload requires a complex and expensive frontier model," Liani said in a note. "Microsoft's approach helps optimize performance while reducing token consumption."
A model-agnostic approach could improve AI economics
Rather than relying on a single model provider, Microsoft can route workloads according to their complexity and cost. By employing a mix of internal and external models, the company can reserve the largest and most expensive models for complex tasks while serving high-volume, product-specific workloads more efficiently. This strategy reduces exposure to the economics of any one provider and keeps Copilot flexible as AI models evolve.
Liani highlighted Microsoft's MAI-Code-1-Flash model, which delivers performance comparable to GPT-5.6 for common Excel tasks at a lower cost. The implication is that Copilot's value does not depend exclusively on Anthropic, OpenAI, or any other individual model provider.
Hardware efficiency adds another layer
Microsoft is also attempting to improve AI economics at the infrastructure level. Engineering improvements across its CPU and GPU fleet, combined with software optimization, have increased throughput for Copilot workloads fourfold since the beginning of the year. The company is also developing custom silicon, such as the Maia 200 chip, which is up to 40% cheaper to operate than traditional Nvidia hardware, according to Liani.
These efficiency gains could become increasingly important as Microsoft brings additional AI capacity online. Liani now expects Azure to grow 41.8% in fiscal 2027, compared with 39.9% in fiscal 2026. "Continued execution on the capacity buildout, faster deployment and greater efficiency increase our confidence in Microsoft's ability to sustain Azure growth," he said.
The key question for investors is no longer simply whether Microsoft can spend enough to compete in AI. It is whether the company can keep converting that spending into faster cloud growth and stronger economics. For now, Bank of America believes the answer is increasingly yes.
For more on the AI landscape, see Broadcom's options signal and OpenAI's security hurdle.
This article is for informational purposes only and does not constitute financial advice.
